Dec 2010 07

Treasury minister David Guake caused outrage yesterday by announcing a range of measures to raise £2bn. The legislation harshens the tax treatment of intra-group loans and derivative contracts and has been given immediate effect. It also addresses the use of trusts to lower income tax and national insurance liabilities and changing investment firms’ functional currencies to create a loss. While there may be some logic in changing the tax treatment of these practices, the 1 per cent corporation tax cut announced in the June emergency budget is scheduled for next year while this raid will hit UK companies now.

Berwin Leighton Paisner tax partner Neal Todd said:

“What is disappointing is that the government wants to bring these changes in with immediate effect. If you wake up in the morning and the law is not the same as when you went to bed, then it’s not good for businesses which want to plan.”

If the Treasury would have brought the scheduled corporation tax cut forward so that it would have balanced the effect on business of these measures the government could reasonably claim it was not a tax rise. Instead they also announced a study to look into proposals for a ‘general anti-avoidance rule’, a prospect which has caused even more alarm than the other measures due to the power of discretion it could give to HMRC and the uncertainty this would cause.

The best anti-avoidance measure is a tax cut. The lower the tax rate, the less incentive there is for companies and individuals to hire expensive, clever accountants and lawyers to find loopholes in the government’s rules. David Gauke and his Treasury colleagues should read ‘How cutting corporation tax would boost revenue’ co-authored by TPA Director Matthew Sinclair to find out how to really increase their revenues and strengthen the recovery at the same time.

Rory is the Research Director of the TaxPayers’ Alliance. Rory’s work is focused on tax policy and economics, with a particular emphasis on tax simplification.

  • Robert Chewter

    i’ve never read such twaddle in my life..this is just you really think by cutting corps tax or letting them off they will they wont..avoidance is avoidance..even its £100 million or £20 …they dont believe in contributing to society and customers arent respected they just an income stream..whilst this lot are let off scott free the rest of the country has to pay the price…

  • Jonh37

    The answer to tax avoidance by the wealthy is NOT to lower taxes… This is right wing monetarist ‘we love Friedman’ BullShit.

    If you would like a serious discussion then lets have one but this argument is beyond comprehension

  • Dan

    If you really think cutting corporation tax would increase tax revenue surely you should be arguing for an increase in corporation tax rate as that will result in less tax being paid!!!!

    George Bush followed your views of tax cutting which and this resulted in lower tax revenues and a massive deficit.

    The Tax Payers Alliance is funded by rich individuals and corporations who are pushing for lower tax out of self interest.